TEDPIX-FX Drama Heightens

EghtesadOnline: Holidays were truly over for Tehran’s stock market, as the last trading week came to a close on April 11.

News ID: ۷۴۵۱۵۶

15 April 2018

No more limited trade volume, lethargy in anticipation of political risks and creeping growth on the back of a devaluing currency, as traders had their epiphany.

The trading week (April 7-11) proved to be a disruption in the continuous, yet limited growth for stocks kick-started since the new fiscal year’s beginning (March 21).

TSE’s main index TEDPIX lost 864 points or 0.9% during the week to close at 96,287, according to Financial Tribune.

Iran Fara Bourse’s benchmark index IFX dropped 42.6 points or 3.8% to stand at 1,064.1.

And what slapped investors out of their holiday slumber was the meteoric rise of the US dollar against rial in Iran’s forex market, and a subsequent Icarus-like fall to a four-month low.

Political tensions were, meanwhile, ratcheting up in the region. It started with a chemical attack in the town of Douma, Syria, and followed with an airstrike on a Syrian air base by Israel with four Iranians among its casualties, AP reported.

And now with two new war-hawks in the White House, namely Mike Pompeo, the new secretary of state, and John Bolton as Trump’s national security advisor, the fate of Iran nuclear deal looks bleaker than ever.

In a time as sensitive as this, a slightest hint of negative developments would shake the market, and last week was not short of such news.

Equities’ Rollercoaster in Line With FX Developments

Traders had to pay attention and act fast. After finishing lower on Saturday and Sunday, stocks rebounded on Monday and recouped their losses.

This is while the rial lost over 18% of its value against USD during the three days.

Investors seemed to realize they could not afford to dally any longer. Stocks benefitting directly from a weaker rial–such as base metals–were targeted while shares in anticipated losers–such as auto producers–were sold off.

However, all this changed in a flash on Tuesday. The Central Bank of Iran abruptly announced the unification of USD rates and fixed it at 42,000 rials, while considering all unregulated trading as smuggling.

The rial was unofficially being traded at 62,000 to the greenback just a day before.

The CBI measure in effect ended the dual exchange rate for the US dollar and saw the official rate rise above 40,000 rials after 28 months.

In response, TEDPIX and IFX dropped 0.85% and 2.99% respectively in the last two trading days of the week.

The rial’s freefall against USD and stocks’ reaction echo the events of the 2012-13 fiscal year, according to the Persian economic daily Donya-e-Eqtesad.

The first five months of that year saw the USD double its value against rial, while stocks remained dormant seemingly over the risk of sanctions and fear of oil sales being stopped. Risks were intensifying near the end of H1, and the government was also publicly contemplating enforcing new prices.

Yet contrary to expectations, stocks started a rally and grew 60% by the yearend. The growth in the face of numerous ambiguities showed that a jump in forex rates can be a strong enough stimulant for equities to rise, even a few months after the rally has died down.

USD, Euro Drop, as Gold Coin Closes Higher

Last week saw USD and euro drop in value against rial on the back of the new unified rates, while Bahar Azadi gold coin continued to gain despite a severe drop mid-week.

The benchmark gold coin gained 2.72% last week to 17.31 million rials. Its high for the week came on Monday as it hit 18.9 million, but it nosedived the next two days to its weekly low of 16.71 million, as the new USD rates were announced.

As for euro, the rial was quoted at 61,650 against the European currency by Thursday’s close, according to Tehran Gold and Jewelry Union’s data. It marked a 0.96% decline against rial.

The unified rates also saw rial gain a total of 17.5% against USD last week to return to last fiscal’s Q4 levels.

And with escalating geopolitical risks in the region, oil is rising too. Brent crude, the international benchmark, was up 7.8% in the past week and was trading near $73 a barrel in the futures market for the first time since December 2014, CNBC reported.

The Iranian government has set up its budget for the fiscal 2018-19 based on a 35,000-rial to USD rate and $55 per barrel oil. With the USD conversion rate now officially at 42,000 and oil price rising, Iran’s 900 million barrels per year of exports are expected to bring in much higher revenues, which can be a potential boost for the economy this year in the midst of unfavorable developments.

Weekly Trade in Detail

Over 4.1 billion shares valued at $215.69 million were traded on TSE during last week. The number of traded shares and trade value grew by 281% and 319% compared to the week before.

TSE’s First Market Index lost 663 points or 1% to end at 68,069.2. The Second Market Index also dropped by 1,578 points or 0.8% to close at 206,757.8

And at IFB, over 1.03 billion securities valued at $247.8 million were traded, with the number of traded shares and trade value surging by 319% and 354% respectively compared to the previous week.

IFB’s market cap lost $206.8 million or 0.6% to reach $35.75 billion.

Its First Market witnessed the trading of 111 million securities valued at $4.3 million, indicating a 652% and 772% growth in the number of traded securities and trade value respectively.

About 428 million securities valued at $31.8 million were traded in the Second Market, with the number of traded securities and trade value rising by 312% and 545% respectively week-on-week.

Over 9 million debt securities valued at $182.6 million were also traded at IFB, rising by 411% and 375% in the number of bonds traded and their value respectively.

Exchange-traded funds were also up 116% in trade number and 43% in value to reach 25 million worth $7.3 million.

Housing mortgage rights’ trade reached 30,000 securities worth $4.3 million, marking a growth of 316% and 329% respectively.